The Internal Revenue Service has released its FY 2013 “Enforcement and Service Results” (available here), which provide statistics as to the agency’s audit, collection, and enforcement activities. FY 2103 began on Oct. 1, 2012, and ended on Sept. 30, 2013. A number of interesting conclusions can be drawn from the data.
The audit rate for individual tax returns in FY2013 was .96 percent, the lowest such rate since FY2006. The total number of audits during FY2013 was 1.4 million, with over 1 million of that number consisting of correspondence audits.
The audit rate based upon amount of income also decreased in 2013 in all categories reported by the IRS. For taxpayers with income of under $200,000, the FY2013 audit rate was .88 percent (as comparied to 1.04 percent in FY2010, 1.02 percent in FY2011, and .94 percent in FY2012). For taxpayers with income between $200,000 and $1 million, the audit rate dropped to 3.26 percent (as compared to 3.93 percent in FY2011 and 3.70 percent in FY2012). For taxpayers with income in excess of $1 million, the audit rate in FY2013 again decreased, to 10.85 percent (as compared to 12.48 percent in FY2011 and 12.14 percent in FY2012).
For businesses, the audit rate also declined. For all entity returns, the FY2013 audit rate was .61 percent (as compared to .63 percent in FY2011 and .71 percent in FY2012). Audit rates also dropped in each category of business returns, as shown below:
- Small corp returns (assets under $10 million): .95 percent (FY2012 1.12 percent)
- Large corp returns (assets over $10 million): 15.84 percent (FY2012 17.78 percent)
- S corp returns: .42 percent (FY2012 .48 percent)
- Partnership returns: .42 percent (FY2012 .47 percent)
The IRS collected over $53 billion in “enforcement revenue” in FY 2013, which includes taxes, interest, and penalties. This was an increase over FY2012 ($50 billion) but a decrease as compared to FY2011 ($55 billion) and FY2010 ($57 billion). A likely explanation for this decline in enforcement revenue is steadily decreasing levels of IRS enforcement personnel (revenue officers, revenue agents, and special agents). In FY2013, the IRS had a total of 19,531 enforcement personnel, the lowest number in a decade. Enforcement positions at the IRS have been diminishing as a result of budget cuts, retirements, attrition, and the like, as the following figures demonstrate:
- FY2010 enforcement personnel: 22,710
- FY2011 enforcement personnel: 22,184
- FY2012 enforcement personnel: 20,868
In FY2013, the IRS undertook fewer collection activities as well, again likely due to staffing reductions, as the following figures demonstrate:
- Levies: 1.8 million (compared to 2.9 million in FY2012)
- Liens: 602,005 (compared to 707,768 in FY2012)
- Seizures: 547 (compared to 733 in FY2012)
On the criminal investigation side, the statistics generally show an uptick in activity by the IRS. In FY2103, there was a spike in the number of criminal prosecutions recommended, to 4,364, as compared to 3,701 in FY2012. The overall conviction rate for tax and tax-related cases remained generally flat, at 93.1 percent. The average jail sentence for tax and tax-related case also remained flat, at 31 months. Finally, the total number of criminal investigations initiated in FY2013 increased to 5,314 (as compared to 5,125 in FY2012) and the total number of taxpayers who were criminally charged in FY2013 also increased, to 3,865 (as compared to 3,390 in FY2012).